We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Mixed
GBP/USD
Bullish
USD/JPY
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Mixed
Bitcoin
Bearish
More View more
Real Time News
  • Recent polls have put Conservatives ahead of Labour and given a boost to $GBP. Get your #Brexit update from @ZabelinDimitri here: https://t.co/l2n53C0cYY https://t.co/oTWfXkaDDt
  • What are the truths and myths of #forex trading? Find out from @DailyFX analysts here: https://t.co/uF75VPzstr #FOMOintrading https://t.co/xeromAGqqx
  • Macro data from around the world have long attested to the urgent need for a trade settlement between the US and China. Increasingly the corporate numbers are saying the same. Get your market update from @DavidCottleFX here:https://t.co/Qon7QUO80c https://t.co/rCOG78QQ2M
  • #Gold prices may fall while the US Dollar gains even as economic policies championed by the Trump administration invite inflation. Get your market update from @IlyaSpivak here: https://t.co/4lHhHsby56 $XAUUSD https://t.co/JmZxckVHdS
  • Cable (GBP/USD) remains just off its seven-month high print around 1.3165 as traders start to move to the side lines ahead of next Thursday’s General Election vote. Get your $GBPUSD market update from @nickcawley1 here: https://t.co/CpCh13J9ZH #Brexit https://t.co/PIh6WUqbsK
  • (Weekly Technical Outlook) GBP/USD, EUR/GBP, GBP/JPY, GBP/CAD Outlook as UK Election Looms $GBPUSD $EURGBP $GBPJPY #UKelection2019 - https://www.dailyfx.com/forex/technical/article/fx_technical_weekly/2019/12/07/GBPUSD-EURGBP-GBPJPY-GBPCAD-Outlook-as-UK-Election-Looms.html?CHID=9&QPID=917702 https://t.co/iuILHYczJ7
  • Why do you require consistency in trading and why does it matter? Find out: https://t.co/WlEFlluGfZ #tradingstyle https://t.co/TkMtJQKatx
  • By issuing debt denominated in $USD, China is making a long-term bet that it will be cheaper to pay back its loans over time in the US Dollar; it believes the value of the US Dollar will fall. Get your market update from @CVecchioFX here:https://t.co/5GO9UrvO4y https://t.co/xV9urXXf48
  • What are some risk trading management techniques? Find out: https://t.co/RShdlDz9RA #tradingstyle https://t.co/M3ASPIHAep
  • #Dow Jones stages impressive recovery on a firm NFP report. #FTSE 100 eyes UK general election. Get your equities technical analysis from @JMcQueenFX here: https://t.co/o28UcG6N3l https://t.co/SwGAaFCFND
US Dollar Turnaround Sparked by EM FX Tantrum

US Dollar Turnaround Sparked by EM FX Tantrum

2018-08-30 18:30:00
Christopher Vecchio, CFA, Sr. Currency Strategist
Share:

Talking Points:

- The BRATS - Brazil, Russia, Argentina, Turkey, and South Africa - have all seen their currencies slump by at least -8% in August.

- Concerns over trade wars, lower expectations for global growth, and the withdrawal of central bank stimulus have fed concerns over the stability of emerging market currencies.

- Issues in Argentina, Turkey, and South Africa likely to persist through September.

See our longer-term forecasts for the US Dollar, Euro, British Pound and more with the DailyFX Trading Guides

The US Dollar (via the DXY Index) is posting a modest turnaround on Thursday, once again driven by factors away from its shores. A shallow pullback by equity markets is helping the dollar post only its second gain in the past ten sessions, as it continues to behave as a quintessential safe haven currency (rallying when stocks fall, falling when stocks rally).

Although US economic data this week has remained positive - earlier today, the August US Core PCE reading showed the Fed's preferred gauge of inflation back at its +2% medium-term target for the first time since April 2012 - the US Dollar rally has nothing to do with the Federal Reserve's rate hike timeline. There is a strong argument to be made that US Dollar price action since mid-June has been largely disconnected from speculation on the Fed's rate hike timeline.

DXY Index Price Chart: Daily Timeframe (January to August 2018) (Chart 1)

US Dollar Turnaround Sparked by EM FX Tantrum

Instead, as was the case driving the US Dollar's early-August surge, the major factor today is the revival of concerns over emerging markets, particularly among those that share some less-than-appealing qualities: high inflation, elevated external debt-to-GDP ratios, current account deficits, and/or political instability are (among others) the hallmarks of a currency on the verge of facing a crisis. Enter the BRATS.

Like the European PIIGS, the emerging market BRATS are those countries that share the aforementioned qualities that put their currencies on the path to crisis. Whatever calm may have transpired in recent weeks was seemingly wiped out today with several key developments:

- the Argentinian Peso is now down nearly -30% month-to-date after Argentinian President Mauricio Macro asked the IMF to release $50 billion in loans, followed up by the central bank raising its key rate to 60% (the Fed's key rate is 2-2.25%, for comparison)

- the Turkish Lira is now down over -26% month-to-date after reports emerged that the central bank's deputy governor, Erkan Kilimci, would be leaving his post, a sign that the government is taking more steps to tighten its grip on monetary policy (markets prefer central banks independent of political considerations)

- the South African Rand is now down over -10% month-to-date after a goverment spokesperson said that the government could "collapse" if reforms are not taken up at a fast enough pace

Performance of BRATS versus US Dollar (Table 1)

US Dollar Turnaround Sparked by EM FX Tantrum

There are two key takeaways from today's price action. First, the mid-month calm that we saw in emerging market FX was misleading; volatility is indeed here to stay. Second, the longer these emerging market currencies stay weak, the greater the likelihood of crises developing down the road. At the current exchange rates (particularly for USD/ARS and USD/TRY), it's only a matter of time before defaults occur and financial insitutions start eating losses - fully expect focus to remain on emerging markets throughout September.

Accordingly, we should learn soon as to whether or not the European Central Bank will be forced to alter its preordained policy path (ending QE in December 2018, hiking rates by "summer 2019") in order to help shore up an overly-exposed European banking system, or if the Fed will back off its current plans for gradual rate hikes over the next year (25-bps hikes priced-in for September 2018, December 2018, and June 2019).

Read more: USD/TRY Sustains Incredible Gains - What EM Currency Could Be Next?

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.